The company announced its 2023 annual results. Operating revenue decreased 1.6% year on year to 7.010 billion yuan, gross profit increased 4.0% year on year to 1,668 billion yuan, net loss to mother decreased 9.7% year on year to 435 million yuan, and core net profit to mother increased 3.0% year on year to 793 million yuan.
The 23-year performance was under pressure, the core business maintained its scale, and the non-owners' value-added business continued to shrink. The company achieved revenue of 7.010 billion yuan (-1.6%) in '23; net loss to mother of 435 million yuan, mainly due to the contraction of value-added business of non-owners and impairment of accounts receivable and goodwill. By business, the year-on-year growth rate of value-added income from property management business/life services/non-landlords was 12%/-16%/-64%, respectively. Affected by the decline in real estate and the credit risk of related parties, the company drastically reduced the value-added service business for non-landlords based on the principle of marketization. Meanwhile, the scale of the core business (excluding non-owners) remained stable, accounting for an increase of 85% to 95% of total revenue, and a total gross profit of 1.62 billion yuan, which increased to 97%.
Further deductions were applied to accounts receivable, and the influence of related parties continued to be absorbed. The company made bad debt provisions of 850 million yuan in 23 years, most of which was an impairment of accounts receivable from related parties. After excluding effects such as impairment and amortization, the core net profit for 23 years was 790 million yuan (+3.0%). After the company reduced its accounts receivable by a large amount in the past two years, the net value of the company's related parties' trade receivables fell further to 1.44 billion yuan at the end of '23, and the pressure on related parties' accounts receivable continued to dissipate.
Focus on core cities and stabilize the management infrastructure. The company's core management area was stable, reaching 273 million square meters at the end of 23, an increase of 12% over the previous year. The company actively implemented the strategy of focusing on core cities. The share of basic property revenue from core cities in '23 was about 84%, and the unit price of property fees in core cities reached about RMB 3.1 per square meter/month. Furthermore, the company resolutely controls the quality of the market and voluntarily withdraws some projects with poor business interface. 80% of the withdrawal contract area is for third parties and 20% for related party projects. Due to uncertainty about the delivery of related parties' reserve space, it is difficult to rely on the new contract area in the medium to long term. The future growth of the company's management scale will mainly rely on market-based expansion capabilities. Under the guidance of focusing on core cities, the company achieved a single-year contract amount of 400 million yuan in 23, accounting for 92% of core cities, and the share of major customer contracts increased to 39%.
Maintain the increase rating and adjust the target price to HK$2.12. According to the company's 23-year results announcement, we adjusted the company's management area and revenue and gross margin forecast values, and raised the company's expense ratio forecast. The adjusted EPS forecast for 23-25 was -0.14/0.24/0.26 (the original forecast was 0.34/0.43 yuan for 23-24 years), which is comparable to the company's 24-year PE 8x, corresponding to the target price of HK$2.12 (1 HKD = 0.907 RMB).
Risk warning
The pressure on related parties' accounts receivable has increased further. Outreach is uncertain. Risk of asset impairment losses.